HR-9721-119
Ordered to be Reported in the Nature of a Substitute by the Yeas and Nays: 23 - 15.
Sponsored by Lloyd Smucker (R-PA)
What it does
This bill would require tax-exempt charities (other than private foundations and donor-advised funds) to report details of "fiscal sponsorship arrangements" on their annual IRS filings, including the parties involved, amounts transferred, and the responsible officer. It would also deny charitable tax deductions for contributions made under "improper conduit arrangements" — where a charity solicits funds for a non-exempt person or project but does not actually exercise control over the money — and would impose new excise taxes (20% and up to 100% on the organization, 5-50% on managers) for such improper transfers, effective for taxable years beginning after December 31, 2027.
Who benefits
The IRS and Treasury gain a clearer enforcement tool against sham fiscal sponsorship used to funnel tax-deductible donations to non-exempt individuals or entities without genuine charitable oversight. Donors seeking assurance that their contributions are properly used for charitable purposes benefit from greater transparency, as do watchdog groups and researchers tracking nonprofit fund flows. Legitimate fiscal sponsors that already exercise real discretion and control face little practical change beyond added reporting.
Who is hurt
Nonprofit fiscal sponsors — including many fiscal sponsorship organizations that support small grassroots projects, artists, and startup nonprofits without independent 501(c)(3) status — would face new compliance and reporting burdens and potential excise tax liability if arrangements are found improper. Organization managers (officers, directors, trustees) could face personal excise tax liability for approving transfers later deemed improper conduit arrangements. Donors to projects using loosely structured fiscal sponsorships could lose the charitable deduction if arrangements are recharacterized as improper conduits.
Supporters argue
Supporters argue that fiscal sponsorship has sometimes been used as a workaround to let non-exempt individuals or entities receive tax-deductible donations without a charity actually exercising meaningful discretion and control over the funds, undermining the integrity of the charitable deduction. They contend that requiring disclosure of these arrangements and imposing excise taxes on organizations and managers who knowingly facilitate improper conduits mirrors existing enforcement tools for other forms of self-dealing and private benefit, and would help the IRS identify and deter abuse without affecting legitimate sponsorship relationships.
Opponents argue
Opponents argue that many small, informal fiscal sponsorship arrangements — common among grassroots arts, community, and advocacy projects that cannot afford their own 501(c)(3) status — could be swept into onerous new reporting and tax liability because the bill's definition of "discretion and control" is left to future Treasury regulations, creating uncertainty. They contend that exposing volunteer officers and directors to personal excise taxes of up to $20,000 for approving transfers later deemed improper could chill legitimate fiscal sponsorship, a well-established and widely used nonprofit practice, and disproportionately burden smaller organizations lacking sophisticated compliance resources.